Thursday, June 17, 2010
Idiots in high places.
Nick Clegg, the U.K.’s deputy prime minister, asked “"How will we pursue social justice with billions of pounds of taxpayers' money disappearing down a black hole every year, just to pay the interest on our debt while our schools and hospitals fall apart?" See last para here.
Well the “money” does not “disappear down a black hole”. U.K. national debt is held mainly by U.K. institutions: banks, pension funds, etc. The interest is mostly money going round in circles within the U.K. Of course about a third of U.K. national debt is held by foreigners, but this is more or less cancelled out by the large chunks of foreign national debt held by U.K. institutions. Less money for taxpayers and more for pensions has no effect on the total amount of tax the government can collect from the population.
(Update (24th June): Nice to see some support for my doubts on Nick Clegg's understanding of economics.)
And The Times leading article claimed “Borrowing has expanded so far and fast that it risks economic stability.”
Now look ‘ere Times: the U.K. national debt (like that of the U.S.) is still nowhere near half what it was just after WWII or just after the Napoleonic wars. Neither of the latter lead to “instability”.
Of course there is the point that the world’s debtors are being harassed by the wolf pack lead by those incompetents and fraudsters, the credit rating agencies (to which Warren Buffet pays little attention, according to Janet Tavakoli’s book “Dear Mr Buffett”). But the fact that a collection of vandals are trying to vandalise something is a reason to clobber the vandals, not those being vandalised.
Also the above is an argument for a zero national debt regime, as advocated by Modern Monetary Theory (at least Milton Friedman and Warren Mosler’s version). (See second last para of Warren Mosler’s article.)
But the above U.K. incompetence is not as bad as the claim by Winterspeak that Bernanke doesn’t understand banking! (See 15th June post: “Bernanke cannot do accounting.”